Personal Credit Ratings Run Aground on Lack of Qualified Institutions

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The inability of domestic financial institutions to satisfy regulatory requirements is stymieing the development of a personal credit ratings system in China.

Wan Cunzhi, head of the People’s Bank of China’s Credit Administration Department, said that none of the eight institutions that the central bank anointed two years ago to provide personal credit ratings in China had satisfied regulatory benchmarks, and that a large amount of basic work would be needed before a license could be issued.

“Out of the eight institutions that are undertaking preparations for personal credit rating operations not one is qualified at present, and a license cannot be issued unless regulatory benchmarks are satisfied,” said Wan.

At the start of 2015 the Chinese central bank issued an official circular requesting that a total of eight companies, including Ant Financial, China Chengxin Credit, Sino-Hawk Credit and Tencent Credit, commence preparations to provide personal credit ratings in China.

Wan said that PBOC did not want too diffuse a spread of personal credit ratings agencies in China, and for this reason made the thresholds for entry quite high.

A key reason that PBOC has thus far denied any of these companies licenses is its concerns about their unwillingness to pool information as well as a lack of third party independence.

According to Wan all eight companies run comparatively closed online operations that objectively divvy up market information and prevent information sharing.

This territorial attitude on the part of online companies could cause errors in the collation or use of information during the process of forming personal credit ratings.

Wan further points out that each of the eight enterprises are affiliated with other enterprises or corporate groups, and still lack the requisite level of third-party independence to conduct credit rating operations.

The Chinese government is keen to establish a secure and effective personal credit rating system in order to spur consumption by facilitating the ability of citizens to obtain finance.

At the recent “Personal Information Protection and Credit Management” forum, Chen Yulu, PBOC vice-governor, said that the Chinese central bank was “actively and appropriately advancing work to issue licenses to provide personal credit ratings,” while emphasising the need for effective protection of private information during the process of collation, processing and usage.

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